Interviews
Cotton market remains in 7-months trading range
24 Mar '07
4 min read
USDA will release it March planting intentions report on Friday of next week. U.S. upland acreage could have an 11 in front of it, but will likely be a very low 12 something. Look for about 12.2 million acres of upland cotton to be planted. Certainly any total acreage number below 12.5 million acres will be bullish. The lower the intended plantings the higher the price rally. Too, also remember that the report will be based on market and weather conditions as of March 1.
In the face of a market in price equilibrium, there is considerable bullishness in the air. The Wall Street Journal published on Tuesday a major story on the bullishness facing the cotton market. Additionally, large fund managers and index fund managers seem to be wetting their pants over the prospect of jumping on the cotton bulls back.
These funds hold large long positions in cotton futures at present and, from what they say, are adding to their positions on a periodic basis. Yet, while the bear is off the market's back for now, he can, with favorable conditions from Mother Nature, take the reins again.
Signs do point to price improvement in the coming months, but not for old crop contracts-just the new crop contracts. Certainly any rally in the back end of the market will pull the front end higher, somewhat. However, the only potential for a significant price increase is tied to new crop fundamentals.
However, with a market in equilibrium and facinga greater probability that total available supply will fall below demand, a price increase should be expected. Thus, the market will rally in line with traders expectations of the amount of reduction expected in carryover stocks.
Speculative fund managers are talking in terms of New York moving to 70 cents. I too, can build such a case. However, the case is built on both increased demand from China and a decline in world cotton production. Chinese consumption will increase, without question.
However, as my broken record spins, Mother Nature holds the hand that determines production. Thus, the reason I like the idea of buying December put options on any move in December near to 61 cents. Cotton keeps on giving with excellent fall weather, thus do not discount the possibility of record yields.
In the face of a market in price equilibrium, there is considerable bullishness in the air. The Wall Street Journal published on Tuesday a major story on the bullishness facing the cotton market. Additionally, large fund managers and index fund managers seem to be wetting their pants over the prospect of jumping on the cotton bulls back.
These funds hold large long positions in cotton futures at present and, from what they say, are adding to their positions on a periodic basis. Yet, while the bear is off the market's back for now, he can, with favorable conditions from Mother Nature, take the reins again.
Signs do point to price improvement in the coming months, but not for old crop contracts-just the new crop contracts. Certainly any rally in the back end of the market will pull the front end higher, somewhat. However, the only potential for a significant price increase is tied to new crop fundamentals.
However, with a market in equilibrium and facinga greater probability that total available supply will fall below demand, a price increase should be expected. Thus, the market will rally in line with traders expectations of the amount of reduction expected in carryover stocks.
Speculative fund managers are talking in terms of New York moving to 70 cents. I too, can build such a case. However, the case is built on both increased demand from China and a decline in world cotton production. Chinese consumption will increase, without question.
However, as my broken record spins, Mother Nature holds the hand that determines production. Thus, the reason I like the idea of buying December put options on any move in December near to 61 cents. Cotton keeps on giving with excellent fall weather, thus do not discount the possibility of record yields.
O.A. Cleveland
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